ZIMCO Ltd v Musonda and Anor (Appeal 17 of 2009) [2014] ZMSC 257 (6 January 2014)

IN THE SUPREME COURT OF ZAMBIA HOLDEN AT LUSAKA/NDOLA/KABWE (Civil Jurisdiction) APPEAL NO. 77/2009 SCZ/8/18/2009 BETWEEN: , ZIMCO LIMITED On LIQUIDATION) APPELLANT AND CHONGO COREEM MUSONDA IRENE CHIWALA 1 gr RESPONDENT 2nd RESPONDENT CORAM: E. L. Sakala, C. J., L. P. Chibesakunda and M. S. Mwanamwambwa J. J. S., On 13th April 2010 and 6th January 2014 For the Appellant: Mr. S. Malama, S. C.,. of Messrs Jacques & Partners and with him, Mr. A. Mwanza. For the Respondents: Mr. J. Banda of Messrs A. M. Wood & Company. JUDGMENT Mwanamwambwa, JS, delivered the Judgment of the Court Cases Referred to: 1. 2. 3. D. H. N. Food Distributor’s Limited v Tower Hamlets LDC. The Attorney General vs M K Achiume (SCZ No 2 of 1983)Z. R.1. Saban (& Another) v Milan [20081 Z. R. 233. Legislation referred to: 1. The Companies Act. CAP 388 of the Laws of Zambia. Sections 320 (3), 321 and 326 (1). 2. The Supreme Court Rules, 1999 Order 2, Rules 1 and 2. Other Works referred to: 1. Halaburv’s Laws of England (d* Edition) Volume 7, page 89, paragraph 1448. 2. Cheshire and Flfoot’s Law of Contract page 84. -J2- 3, Palmer’s Company Law (24th Edition). Volume 1, paragraphs 89- 4. Gower and Davies: Principles of Company Law edition), page 1226. The delay in delivering this Judgment is deeply regretted. • It is due to a heavy workload. Former Chief Justice E. L. Sakala was part of the Court that heard this appeal. He has since retired. Therefore, this Judgment is by the majority. This is an appeal against the Judgment of the High Court, dated 19th January 2009, in favour of the Respondents, in the sum of US $814,422=00, being outstanding fees due to the late Mr. S. B. Musonda, for professional services rendered to the Appellant, plus interest. The case for the Respondents was that they are Administratrixes of the late Mr. S. B. Musonda. The deceased was engaged as the Liquidator of ZIMCO Limited (in liquidation) and a number of its subsidiaries. He was appointed as such between 1995 and 1998. He died on 25th November 2004. Before his death, the deceased rendered professional services to Appellant, and its subsidiaries. He was paid by the Appellant as and when he rendered invoices. At the time of his death, the deceased was owed by the Defendant, the sum of US $814,422, as Liquidator’s fees, for work done by him between 2001 and 2003. In 2003, the deceased’s appointment as Liquidator was terminated. Before, then, the Committee of Inspection used to approve the amount of fees payable to him and other -J3- Liquidators. After termination of his appointment, the Committee of Inspection refused to approve the deceased’s fees and did not give the reason for such refusal. The Appellant denied owing US814,422. It’s case was that the subsidiaries named in the statement of claim were independent companies. They were independently placed in liquidation. That their Liquidator was independently appointed, in respect of, and by, each of the said subsidiaries. That since there was no action against the subsidiaries, no claim could be sustained against the Appellant, in respect of any alleged fees, relating to any alleged work done by the deceased, in respect of the subsidiaries. The Appellant further contended that the work attracting the fees was not done during the period when the deceased was Liquidator. It also contended that the deceased’s fees were exaggerated. After evaluating the evidence, the learned trial Judge found as a fact as follows:- 1. The Appellant company agreed to pay; and did in fact pay Liquidation fees for itself and on behalf of its subsidiaries. 2. That on 28* March 2001, the Committee of Inspection of the Appellant company passed a resolution that Norman Mbazlma and Ralph Preece, who had offered to resign, be allowed to resign, but that the deceased would remain the - J4- sole Liquidator of the Appellant company. The Committee resolved: “That all outstanding liquidation fees due and payable to Messrs Mbazima, Musonda, and Preece, as at 28th February 2001 are hereby approved and be paid at the earliest opportunity and subsequent to such payment, neither Mr. Mbazima nor Mr. Preece will have any further claim for fees as liquidators to the Company and Mr. Musonda will be paid additional fees for additional work he may find necessary to perform as the Committee of Inspection shall direct.” 3. That after the above resolution was passed and between March 2001 and January 2003, the deceased assisted by professional staff at Paragon Consulting Limited, rendered further professional services to the Appellant and Its subsidiaries, accumulating a total of US $814,422.00, in liquidation fees. 4. That the rates used by the deceased for the period, were prevailing market rates, which the Committee of Inspection was aware of and had previously approved and used on previous bills approved by the Committee of Inspection and subsequently paid. 5. That the Respondents had shown, and the Appellant confirmed, that monies in the accounts of the subsidiary companies accounts, were transferred to the Appellant’s account and later to the Ministry of Finance, representing the main shareholder, the Government of Zambia. -J5- 6. That previously, the deceased applied rates which were approved by the Committee of Inspection. 7. That the Respondents’ evidence on work done by the deceased was not challenged. She accepted the evidence of the Respondents that the time sheets presented, not having been specifically challenged, were proof of work done by the deceased and his professional staff. 8. That the Respondents’ claim has been outstanding for five (5) years, while the current Liquidators had been paid for work done during the same five (5) years, with the approval of the same Committee of Inspection. 9. That even after the deceased was removed as Liquidator, the Appellant company continued with the established system of paying expenses on behalf of the subsidiaries. The learned trial Judge then concluded and held that the Appellant was liable for the fees claimed, for work done for the Appellant and its subsidiaries, as per practice established which was the same practice followed by the current Liquidators. Dissatisfied with the Judgment, the Appellant has appealed to this Court. There are four (4) grounds of appeal. The lBt ground is that the trial Court erred in holding that the liquidation fees of the subsidiaries of Zimco Limited (in liquidatior^, should be paid by the Appellant in accordance with the practice that existed then. -J6- On ground one, the late Mr. Malama submits that it is not in dispute that the Appellant’s subsidiaiy companies were dissolved and struck off the Register of Companies, well before 19th December 2007, when this action was commenced. The subsidiaries in question are Supa Baking Company Limited, Zambia Agricultural Development Limited, Mwinilunga Canneries Limited and Zambia Consumer Buying Corporation. That at law, a Judgment obtained against a company after its dissolution is invalid. In support of this argument, he refers us to Halsbury’s Laws of England (4th Edition), Volume 7, page 809, paragraph 1448. He submits that a Judgment for US $318,000=00, obtained against the Appellant, in respect of fees relating to the subsidiaries, is practically a Judgment against the subsidiaries. Hence, it cannot be upheld. He submits that the Respondent sued the Appellant for alleged fees in respect of the subsidiaries, because there was no cause of action against the dissolved subsidiaries. Further, he asks the Court to hold that the practice , referred to by the trial Court, insisted on the approval of the Committee of Inspection before any liquidation fees would _ become payable. Therefore, no action may be maintained against the Appellant. He urges us to set aside the Judgment of the trial Court, as it relates to US $318,000=00. In response, on behalf of the Respondents, on ground one, Mr. Banda submits that even before the subsidiaries were -J7- dissolved, it was the ongoing practice by the Appellant, to pay Liquidators’ professional sendees, rendered with regard to the Appellant itself and all its subsidiaries. He points out that even after the late Mr. S. B. Musonda was removed as a Liquidator, * the Appellant continued to pay Grant Thornton, the current Liquidator, fees for work done in relation to all subsidiaries. Such payments appear at pages 134-143 of the Record of Appeal. He submits that the Appellant is stopped by its conduct, from denying paying for professional services rendered in respect of its subsidiaries. As authority for estopel, he refers us to page 84 of Chesire and Fifoot’s Law of Contract. He submits that the learned trial Judge was on firm ground in holding that the Appellant is liable for paying Liquidation fees for its subsidiaries. Mr. Banda further submits that the Appellant was the holding and parent company of the dissolved subsidiaries. As such it must be responsible for Liquidation fees of its subsidiaries, during their existence. That the Appellant was at all times in control of liquidation process of the subsidiaries. In support of his argument, he cites D. H. N. Food Distributor’s Limited vs Tower Hamlets L. D. C. (1) In that case Lord Denning stated as follows ............ “This group, is virtually the same as a partnership in which all three companies are partners. They should not be treated separately so as to be defeated on a technical point... They should not be deprived of compensation which would justly be payable for disturbance. The three -J8- compdnies should, for present purposes, be treated as one and the parent company, D. H. N., should be treated as that one." We have examined the Judgment appealed against and the record of appeal. We have considered submissions of Counsel on ground one. We accept the submission of Mr. Banda that the Appellant was in control of the liquidation of its subsidiaries. Before, and after the late Mr. Musonda, was removed from liquidation, the Appellant paid professional fees for liquidation of its subsidiaries. This is evidenced by pages 134-143 of Volume 2 of the record of appeal. Therefore, it is estopped from denying responsibility for payment of liquidation fees for its subsidiaries. In the premises, we are of the view that it was in order for the Respondents to institute this claim against the Appellant. Accordingly, we dismiss ground one of appeal. Mr. Malama argued grounds two and four together because they are inter-related. These grounds read as follows: "2. The Court erred in not holding that as the Committee of Inspection did not approve the liquidation fees; the same are not due for payment and therefore, the action was premature." “4. The Court fell into error In not having considered the effect of Sections 320 (3) and 326 of the Companies Act as It applies to the facts in this case." -J9- On grounds two and four, Mr. Malama attacks the finding of the learned trial Judge to the effect that monies from the subsidiaries have been transferred to the account of the Appellant. He says that this finding is against the evidence on record. He points out that according to the evidence of D. W.l, Mr. Ndhlovu, the monies were transferred to the Ministry of Finance and not the Appellant. That the Ministry of Finance is different from the Appellant. That the Ministry of Finance was the Shareholder and owner of the Appellant and subsidiaries. He submits that payment of any liquidation fees was subject to approval of the Committee of Inspection. He submits that according to D. W.l, no approval was given by the Committee to pay the liquidation fees, to the deceased. That the trial Court failed to address the effect of lack of approval by the Committee, under Sections 320 (3) and 326 ((1) of the Companies Act, CAP 388 of the Laws of Zambia. He argues that in terms of Sections 320 (3) and 326 (1) of the Act, a liquidator may approach the High Court to determine matters relating to the liquidator’s remuneration. He submits that when a liquidator is appointed and the mode of determining his fees is not agreed, he would be entitled to a reasonable fee. He submits that in this case, the Committee developed a practice which allowed the liquidator to deliver his fee note which in turn was subject to approval of the Committee; and sometimes after bargaining or negotiating the fee. He points out that up to 20th February 2001, all fees delivered by the liquidators were approved and paid. The fees delivered after 28th February have -J10- not been approved by the Committee and therefore, not paid. He submits that no fee would be due for payment until the approval of the Committee has been given. That by allowing the claims in this action, the trial Court wrongfully performed * statutory functions, which the Companies Act vests in the Committee. He submits that the liquidator or the Respondents ought to have gone to Court by motion or originating summons, to determine the question of approval and the level of fees in terms of Sections 320 (3) or 326(1) of the Act. That the matter should not have been commenced by writ of summons. In support of his submission, he refers us to Palmer’s Companies Law, (24th Edition), Volume 1, paragraphs 89-19. The paragraphs, state as follows: "When a company is in the course of voluntary winding up, many matters can be dealt with without the need to apply to Court but an application may become necessary e.g. for purposes of ... fixing the liquidator’s remuneration..... Section 112 enables the Court to determine “any questions" arising In the voluntary winding up and the powers of the Section have been liberally construed....” He adds that Section 112 of the English Companies Act is * similar to Section 326 (1) of the Zambian Companies Act. He adds that the trial Court did not address the matters of law which were raised in relation to Section 316, 32Q (3) and 326 (1) of the Companies Act. That had it addressed the said Sections it would have held that the absence of approval of the Committee of Inspection precluded the Respondents from -Jll- commencing these proceedings by writ of summons. Further that the trial Court would have held that the question of the liquidator’s remuneration was statutorily vested in the Committee of Inspection; and that without the Committee’s approval, no fees were due for payment. He reiterates that the statutory route open to the Respondents was to proceed under Sections 320 (3) or 362 (1), in order for the special (liquidation) Court to determine the question of payment of the fees and the quantum thereof. In response on grounds 2 and 4, on behalf of the Respondents, Mr. Banda submits that the Court below was on firm ground when it found that the Appellant was liable for the payment of liquidation fees on behalf of the subsidiaries. He submits that the findings of the trial Court that monies were paid to the Appellant was not contrary to the evidence of Mr. Ndhlovu. That the evidence of the Respondent’s witness, Mr. Arthur Ndhlovu, and that of the Appellant, Mr. Charles Sekwila, confirmed that the liquidation money from the subsidiaries were paid into the Appellant’s account and not that of the Ministry of Finance. He points out that the witness for the Appellant confirmed this at . pages 62 and 63 of the record of appeal, as read with pages 675 and 686 of Volume III of the record of appeal. In this regard, he refers us to executive summary of the current Liquidators, at 3rd January 2013, which reads as follows: -J12- “After the dissolution of the above companies, we instructed respective Banks where the companies held accounts, to transfer all funds to Zimco Limited (in liquidation), for onward distribution to the shareholders of the companies. We are pleased to report that funds, net of expenses paid on behalf of the companies by Zimco Limited (in liquidation), were distributed to the shareholders...” He adds that the Appellant was clearly in control of the entire liquidation process of its subsidiaries; and that is why it paid expenses on behalf of the Subsidiaries. He points out that the Appellant mistook the evidence of Mr. Charles Sekwila, its witness?, for that of Mr. Arthur Ndhlovu, the Respondent’s witness. And in the process, erroneously faulted the trial Court’s finding on transfer of the liquidation of money. On lack of approval by the Committee of Inspection, Mr. Banda submits that where the Committee of Inspection fails, or unreasonably withholds approval, the Court Has power to order payment of the liquidator’s fees. That the High Court and this Court have power to compel payment of the liquidator’s fees. That this may be done under Section 321 of the Companies Act. He submits that where the Committee of Inspection fails to - perform its duties, the Court may exercise its powers in terms of Section 321 of the Companies Act. He argues that unreasonably withholding the fees of the liquidator’s is a contravention of the functions of the Committee of Inspection. In support of submissions he refers us to Gower and Davies Principles of Modern Company Law. (8th Edition), at page -J13- 1226. He points out that the evidence on record shows that the current liquidators have been paid and continue to be paid for work done on behalf of the Appellants and its subsidiaries. That the fees claimed herein were incurred long before the current Liquidators were appointed. That there is no reason why the deceased’s liquidation fees have not been paid. Therefore, it is appropriate that the Court intervenes in the matter and ordered payment of fees for professional services rendered. On procedure, Mr. Banda advances three arguments. Firstly, he argues that Sections 320 (3) or 326 (1) are not couched in mandatory terms to compel a liquidator who has not been paid to follow them. That there is no law which precludes a liquidator from claiming his fees by way of writ of summons. Secondly, he argues that the late Mr. S. B. Musonda was removed as a Liquidator without notice and is now deceased. He submits that Sections 320 and 326 would have been applicable, where the Liquidator himself was available to make the necessary application. That in the absence of the liquidator, the action must be commenced by writ of summons. Thirdly, he argues that the Appellant should have raised a preliminary issue to challenge the whole action, in the Court -J14- below. That the Appellant did not do so. Instead it filed a defence and the matter proceeded to trial. That it is too late to challenge the mode of commencement now. In support of his submission, he refers us to Order 2, Rule 2 of the Supreme Court Rules 1999. We have considered grounds two and four and the submissions thereon. On the transfer of the money, we do not accept the submission by Mr. Malama, faulting the finding by the trial Judge that the monies raised from the Liquidation of subsidiaries were transferred into the account of the Appellant. As correctly submitted by Mr. Banda, the learned trial Judge was correct in finding as she did. Her finding was based on an independent report which stated that the money was initially transferred into the account of the Appellant. From there, it was transferred to the account of the Ministry of Finan rp, the shareholder. This is as per pages 675 and 686 of the record of appeal (Volumes 3). On non approval and non payment of the Liquidator’s fees, we agree with Mr. Banda that the Committee of Inspection has unreasonably withheld approval. No reason has been given for non approval. An in the circumstances the Court below had power and was in order to order payment of the fees. We hereby uphold its decision. -J15- On procedure, we note that the learned trial Judge did not deal with issue. We accept the submission by Mr. Malama, this was a misdirection on the part of the learned trial Judge. However, on merit, the answer on procedure is found in Order 2, Rules 1 and 2 of the Rules of the Supreme Court, 1999. Order 2 deals with non-compliance with Rules and applications to set aside process for irregularity. It provides as follows: “Non-compliance with Rules (0.2,r.1) 1. -(1) Where, in the beginning or purporting to begin any proceedings or at any stage In the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an Irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein. 2. Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned In paragraph (1) and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any documents, judgment or order therein or exercise its powers under these rules to allow such amendments ......................(If any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit 3. The Court shall not wholly set aside any proceedings or the writ or other originating process by which they ■ were begun on the ground that the proceedings were -J16- required by any of these rules to be begun by an originating process other than the one employed.” “Application to set aside for irregularity (0.2, r.2) 2.-(1) An application to set aside for Irregularity any proceedings, any step taken in any proceedings or any document, judgment or order therein shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity. (2) An application under this rule may be made by summons or motion and the grounds of objection must be stated in the summons or notice of motion.” If the Appellant objected to the mode of commencement of proceedings in the Court below, it should have entered a conditional appearance. And then, within 14 (fourteen) days thereafter, apply to set aside the writ of summons, for irregularity, under Order 2, rule 2. The Appellant did not do so. It opted to file a defence and allowed the matter to proceed to trial. By so doing, it waived its right to object to the irregularity. We accept Mr. Banda’s argument that it is to late to object now. For the foregoing reasons, grounds two and four fail. Ground three says that the trial Court erred in law when it relied on the time sheets as proof of the work done by the deceased liquidator, as they were essentially hearsay and -J17- further the question of the amount of work and therefore, the value thereof was for the Committee of Inspection to determine. On behalf of the Appellant, Mr. Malama starts by attacking, as a misdirection, the finding by the learned trial Judge, when she said: “In the circumstances, I accept the evidence of the Plaintiffs that the times sheets presented not having been specifically challenged are proof of work done by the deceased and his professional staff....” He submits that contrary to the Court’s ruling, holding the time sheets were not specifically challenged. That in fact it was admitted that the time sheets were not a product of the Liquidator, the late Mr. Musonda. They were prepared by a company called Paragon Consulting Limited. That they were challenged in cross examination, as being essentially hearsay. That the Appellant, in the Court below, showed that out of US $315,125 claimed, the late Mr. Musonda, as Liquidator, incurred only the sum of US $13,200.00. That the balance of US $361,925 was incurred by three people as follows (a) Mr. Ndhlovu US $190,400=00. (b) Mr. Martin Mulenga US$132,450=00; and (c) Ms Pamela Kazabu US $39,075=00. He argues that out of the claimed sum of US $693,125 (i.e. US $121,297}, the Liquidators fee amounted to only US$17,700 (i.e. US$13,200 and US $4,500). -J18- That in consequence, as the time sheets were not approved by the Committee of Inspection, they cannot provide proof of work done by the Liquidator, as was held by the trial i Court. Therefore, this Court asked to reverse the findings of the trial Court. In response on behalf of the Respondents, Mr. Banda contends that the Court below was on firm ground when it found that the time sheets were proof of work done by the deceased and his professional staff. He points out that Mr. Arthur Ndhlovu, the witness for the Respondents confirmed exactly how the time sheets were prepared and where Paragon Consulting Limited fits in. That Mr. Ndhlovu explained that Paragon Consulting Limited was owned by the late, Mr. Musonda, 60% and himself, 40%. That the witness testified that the late Mr. Musonda utilized professional staff at Paragon to undertake, or assist with, the liquidation process. That in effect, the liquidation support staff were Paragon exployees. That the staff concerned, in addition to the late Mr. Musonda, were Mr. Arthur Ndhlovu, Mr. Martin Mulenga and Ms Pamela Kazabu. He argues that the current liquidators have adopted the same procedure and still use it. That according to the evidence of Mr. Sekwila, the current Liquidator is Mr. Edgar Hamuwele, who is a Partner in Grant Thornton. That apart from Mr. Hamuwele, there were Ms. Tukuza Tembo, Catherine Malangano, Bwalya Sakeni and Ignatius Mwape, who though -J19- working for Grant Thornton, were attached to the Zimco Liquidation. That Mr. Sekwila confirmed that the liquidation fees were paid to Grant Thornton, from 2003 to 2008. He submits that it is, therefore, wrong to argue that the sheets issued by Paragon are hearsay. He adds that the challenge to the time sheets should have been made at trial. That there was no objection at trial to production of the sheets. Therefore, the trial Judge correctly admitted them, as proof of work done by the liquidator. That to order otherwise would be an interference with the findings of fact by the trial Court. In support of his submission he refers us to Attorney General v Achiume <a>. He further points out that the issue of the time sheets was not raised in the Court below. Therefore, it cannot be raised on appeal. As authority, he cites Saban (& Another) v Milan 13|~ He urges us to dismiss the appeal. We have considered the submissions on this ground and have looked at the authorities cited. For ground three to succeed, it will require reversing findings of fact by the trial Court. In Attorney General v Achiume (2) this Court dealt with circumstances under which an appellate Court would reverse findings of fact. In that case, this Court held as follows:- "(ii) The appeal court will not reverse findings of fact made by a trial Judge unless it is satisfied that the findings in question were either perverse or made in the absence of any relevant evidence or upon a misapprehension of the facts or that they were findings which,, or a proper view of the evidence, -J20- no trial court acting correctly can reasonably make. (ill) An unbalanced evaluation of the evidence, where only the flaws of one side but not of the other are considered, is a misdirection which no trial court should reasonably make, and entitled the appeal court to interfere.” In the present case, we agree with the submission by Mr. Banda that the evidence of Mr. Arthur Ndhlovu explained how and why the sheets relied on by the trial Court were prepared by Paragon Consulting Limited. We also accept the argument by Mr. Banda that the Appellants should have objected to production of the sheets right from the beginning. Once they were admitted in evidence, the learned trial Judge was entitled to rely on them. In the premises, we are of the view that the learned trial Judge’s findings of fact were not. perverse; they were not made in the absence of relevant evidence; they were not made upon a misapprehension of facts. Accordingly, there is no basis upon which we can reverse them. For the above stated reasons, we dismiss ground three of appeal. In the final analysis, we dismiss the appeal, for lack of merit. We award costs to the Respondents, to be taxed in default of agreement. -J2I-. L. P. CH1BESAKUNDA ACTING CHIEF JUSTICE UDGi